AP Photo/Mark Lennihan

The election generated waves of altered thinking that swept Wall Street hour-by-hour last week. By Friday’s close, the picture seemed clear: stocks were in and bonds were out, with high capital appreciation and total return now the goal, replacing income and incremental yield. Those altered beliefs mean heightened expectations that risk-stretching will reward and safety-hunkering will penalize.

Disclosure: Author holds selected U.S. stocks (including Berkshire Hathaway, mentioned below) and actively managed U.S. stock funds

Finally, add in the perhaps most important vision shift: that economic growth with “beneficial” inflation is approaching, abetted by a transformed Fed confidently raising rates higher and faster than previously expected. (See “Wall Street’s Change Of Heart: Fed Will Raise Rates Faster, And That’s Good.”)

Here is a look at some key indicators that show last week’s significant movements.

The ETF “map” of weekly returns

All ETFs (stock, bond, commodity and precious metal) are grouped by type and sized by the amount of assets held. They are then colored by last week’s (Nov. 7-11) returns: From bright green for highest positive gainers, to bright red for largest negative losers.

(Note: This map and the one following are courtesy of Financial Visualizations, FinViz.com. The maps and other market and stock information are available from the site, allowing you to examine such information at no charge. The maps allow hovering over areas to see detailed information.)

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Courtesy of FinViz.com

As widely discussed, U.S. stocks were the better performers. (Important: The “inverse” groupings are of funds that go in the opposite direction, hence the red-colored, negative returns.)

The S&P 500 “map” of weekly returns

Here, the 500 companies are grouped by sector/industry and sized by market capitalization. The same coloring scheme is used.

Courtesy of FinViz.com

Dividend-heavy areas (e.g., utilities), safe havens (e.g., consumer products) and previously popular stocks (e.g., technology) tended to underperform.

Keep in mind that the underperformance does not necessarily mean a weakened outlook for the stocks. Often, rapid movements are driven more by reallocation of existing investments rather than a large inflow or outflow of money invested. Those flows tend to come later, when the picture is clearer and a reasoned strategy is formed.

A notable shift to smaller companies

Often quick, dramatic shifts are felt by larger, liquid stocks first. However, last week saw a significant outperformance by smaller companies, perhaps indicating a desire to enlarge holdings in areas that could be affected more by the improved outlook. The graph starts at the market’s bottom earlier this year to show how smaller companies had been gaining interest until the summer malaise.

Courtesy of StockCharts.com

The Dow Theory finally confirms a bull market trend

You have probably forgotten about the Dow Theory following its return to popularity last year. After all, the market bottomed over six months ago. But that is the Dow Theory’s thing: late to arrive and late to leave. However, that does not make it a lousy indicator. The logic is sound – that you cannot have a true bull or bear market/economy without the “industrial” and the “transportation” stocks/companies being affected by the growth or recessionary factors. To make it valuable, we need to act independently, but keep an eye on it in the background. Then, when it produces its rare signal, as it did last week, we can boost our confidence level that, yes, this really is a bull or bear market at work.

Courtesy of StockCharts.com

That sharp rise appears to be a convincing bullish signal. However, there is one possible problem – that last week’s moves were knee jerks. If, over the weekend, quiet reasoning and contemplation takes back some of the buoyant feelings, it is possible that this week could see a reversal. (I do not believe that will happen, but the suddenness of the move makes it important to see a supporting followthrough this week.)

The Berkshire Hathaway “indicator”

Yes, Warren Buffet is a wise investor, but it is because of what he has created that makes Berkshire Hathaway a good, supporting indicator. The company is a uniquely diversified combination of (1) controlled operating companies, (2) private company equity positions and (3) a portfolio of publicly traded company stocks. Because of Buffet’s value approach and midwestern approach, Berkshire does not rely on fads or financial engineering to generate results. Additionally, Buffet and the company are open in their plans and reasoning, so Berkshire’s stock price reflects sound analytic thinking and evaluation.

That said, when Berkshire charges into all-time high territory, it is both a notable event.

Courtesy of StockCharts.com

The bottom line

Last week’s signals were clear: the U.S. stock market is in a bullish trend, built on an improved outlook for growth with inflation. Accepting this message means many investors must adjust their investment attitudes, beliefs and expectations created in the past market environment.

Boosting stock allocation to 60% or higher, welcoming risk, ignoring dividends while aiming for capital appreciation, and actively managing holdings might sound like terrible advice in this period of “uncertainty,” “high stock valuations,” and distrust of Wall Street. But, that’s investing. The best time to be aggressive is always when it feels like it is time to be cautious.